Five ways to encourage kids to save

by Nick on April 13, 2012

Sometimes I think I may be a little too aggressive when it comes to teaching my son to save money. From two years old I’ve been teaching him that when you get money you put it in your banks – one for saving, one for spending, one for giving and one for investing. Now when you ask him what you do with money he knows… one or saving… one for spending… you get the gist of it. He’ll be three in June. And when you ask him “where is the best place to go if you want money” he’ll answer “to work.”

It’s not all calculators and paychecks in our house though. I don’t want to be all business with him. But I could not imagine letting him leave the house without a respect for hard work and money and knowledge that money has multiple purposes. Same goes for my daughter, although she’s only 7 months old, so I haven’t started teaching her about money yet.

So when I stumbled on a guest post by Len Penzo over at Kiplinger a few weeks back that suggested five ways to encourage kids to save money, I had to share it with you. With the migration from blogger to wordpress the link got buried, but I dug it out last night so you could have a weekend to implement at least one of these strategies. Deal?

Implementing one of these a month can be a relatively easy way to make sure your kids don’t leave home without valuable lessons about money. And please don’t put financial education all on the schools. Teachers have 20 or more kids for six hours a day, five days a week. You have only your kids for the rest of the week. Let’s all agree to at least set a good example at home so we’re the last generation crippled by stupidity debt. Another deal? Good.

Anyhow, let’s dig in:

Give them a magic money jar. Oooohhhh. I want a magic money jar! Basically the idea is to have a clear jug where they deposit change. When they have a buck or two you take the change and replace it with bills while they’re out. Pretty cool for sure. I like this idea a lot. Showing them that money grows is huge.

Teach them about compound interest. Len suggests talking with kids about the old “would you rather have half a million dollars now or a penny on day one and doubling it every day for a month.” (If you haven’t heard of this do the math. It quickly adds up to over a million bucks by the end of the month.). Once your kids get how the math works, explain to them that it’s because of compounding and that if they save and invest their money they’ll be able to have less extreme but similar results.

Set a goal. We did this a lot with my nephew growing up. We’d tell him that something cost $5 and that he could earn $1 per day if he helped clean something. He did, saved up the money and got what he wanted. As kids get older you can do this with more money and bigger goals. They’ll learn to delay gratification and that more work equals more money which equals more opportunities. And those more opportunities could translate into a quality mba online degree, without having to take out extensive student loans

Start a competition. What kids don’t love competition? Pinning one kid against the other for a savings goal is pretty brilliant. I mean, they’re going to compete anyhow, it might as well be over something positive…

Match their savings. The kids need to be a bit older for this one, too. I’ve tried it with my son and my nephew when he was five or six or so. Didn’t work that well. For younger kids I do something similar by telling them something is cheaper than they think so they can save up for it quickly. But as the kids get older, I love the idea of building in a rate of return for them.

Not bad, Len. Not bad. I’m really hoping my kids grow up to be respectful and responsible adults. And a big part of that is being wise with money, so they can concentrate on being a good Dad or Mom and on things that they and their families enjoy instead of whether they’ll be able to pay their light bill. So I talk a lot with my son about money.

What about you? Any kids in your present or future? Are you taking the lead on financial education at home? If so, what’s your best suggestion for getting a kid to become wise with money?

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We don’t have any kids yet but I work with parents quite often and try to help them with teaching their children.

I think it’s important to teach them the different buckets like you outlined (spending, saving, giving, etc). The most important principle is that whole teaching them to work thing. I don’t think it’s as effective when parents just give kids an allowance – that simply tells them that things are handed to them in life.

Just like your son said, if you need money the best place to go is work!

My wife and I are also trying really hard to instill good saving habits and hard work into our children. When they were young, they learned that if they wanted a toy, they would have to do chores around the house to get money and save up. But as they got older, things took a strange and funny turn. They now aggressively negotiate the terms of their payments. “I’ll pick up the dog poo in the backyard for $5”, they say. $5? Hmmm, do I really want to pick it up? This might be a bargain. In another example, my daughter once somehow negotiated getting a prize from Chuck E Cheese for about half the tickets it cost. I think they’re on to something …

I love the Chuck E. Cheese negotiation! That’s great. I’m struggling a bit to prepare for the whole chore thing. My kids need to understand that there are some things you do just because Dad or Mom tells you to do. Other things are “work,” for which you’ll get paid. But your kids sound like they’re already ready for post-graduate salary negotiations!

My daughter is 5 and we’re just starting to teach her about money. She has a change jar where she saves loose change and just this morning, we were talking about her having a budget to buy toys with money we have saved in her envelope (her change jar was completely full a few weeks ago and we cashed it in).

My biggest way of teaching her about money is to be a good example. To quote the great Metallica “nothing else matters”. If you don’t practice what you preach, your kid is going to be a financial train wreck.

I also don’t have kids yet but these are all great tips – I think anything that you do to go the extra mile to teach kids about money is a step in the right direction. After all, many parents don’t teach their kids anything!

When I was in middle school, my mom showed me all of their mortgage papers and pointed out, line by line, how much interest we can save and how many years we’d be “ahead” of the official pay-off schedule if we just made extra payments toward the beginning of a mortgage. It made a HUGE difference in my mind how $100 saved on this and that can save us $300 or $400 in interest.

Wow – that’s really cool. I need to remember this for when my kids are a bit older… I’m hoping to live a simple enough life to be without mortgage by then, but I love the togetherness and concreteness of this. Your mom sounds awesome!

Yeah I wonder what the right age to start teaching kids about money is. Logic says the earlier the better, but at the same time you don’t want to overwhelm them with thinking about money at too young an age. I like the idea of having a magic money jar where the money grows on its own. I’m not sure how well this would work when I was a kid though. I just liked candy too much that I’d give in and go buy me some candy. That’s where setting a goal would come in handy.

Regardless of the specific approach you take though, it is extremely important to teach kids about money. While it would be nice if they learned that stuff in school, parents have to take some responsibility.

I’m trying to do as much as he can digest, but I don’t want to do so much that he pushes back. At 2 years old it’s probably not going to result in pushback, but I’m curious to see what happens in a few years. I agree, too. While I think parents need to take ultimate responsibility, it would be nice to see some of this covered in school, too.

You are setting an excellent example for you son. Of all the things I wish I had learned as a kid it would be the time value of money. So much lost opportunity to set aside money when time is your ally.

Thanks Thad. I’ve been brainstorming a few ways to teach time value. I’ve set up a few accounts in which I deposit various amounts per month and am thinking as they get older I’ll show them some of the account history on that, too, and have some fun with a calculator.

I’m also thinking having them identify a big obnoxious toy – like a mansion or Bentley or something silly like that and show them that if they start early they can get one with only a few hundred bucks a month or something like that. (While secretly hoping that they either change their mind by the time they have enough money or that they end up having so much that they can have it all…)

Please help me with my 11-year-old! He’s the laziest thing ever! (Excuse me while I scrub the tire tracks off my son’s back, but it’s unfortunately true.) We’re firm believers that children shouldn’t just be given an allowance simply for breathing, and my 8-year-old is constantly asking what he can do to help out around the house for some extra money…and get this–he saves every penny! A boy after your heart, right? BUT our oldest says “Eh…$2 to wipe down the bathroom sinks? Not worth it.” Seriously? I actually talked to him after reading this and tried the ‘competition’ thing and he shrugged and said he didn’t really care about having money.
Am I doomed? Is my child going to be a total bum that I’m going to have to bail out and fund all the time? Maybe he’s just a hormonal pre-teen too, though.
Anyway, good tips…I will definitely try some more later since I don’t want him onto me for trying a bunch all at once 😉

Hmmm… I’ve thought about this quite a bit (both before and after your comment. Incidentally, I hope the tire tracks are now gone and were from the new bike at least…)

Older kids are tough… fortunately I have a few years before we get there, so let me know what works! If I were in your shoes I would try to get him more interested in money in a few ways. First, I’d have some big obnoxious toy that he wants but that is just unnecessary and let him earn money to waste (this will also be a good lesson on wasting money if it resonates with him and it doesn’t work out like he planned). Second, what about “paying” him in toys, trips or adventures, instead of money (if he always asks to go to the batting cages, he can earn that). Third, what if he helped one of you do some more substantial work less often for higher amounts of money. A friend paid their kids $20 for book reports on books they wanted their kids to read and that worked for them, for example.

Another one I really like is to bring him with you to volunteer time to help others who are less fortunate (i.e. a soup kitchen or habitat for humanity). Sometimes a little perspective about what it’s like to not have money might trigger a change. And it’s always great to teach kids to volunteer time and donate money from an early age, right?

I’d try it as a one-time outing at first and just see his reaction – don’t even mention why you’re bringing him there – let him complain all the way there and ask questions after… Or do so subtly, reminding him that it’s important to help others who are less fortunate and that you are all very lucky that you’re able to work to have all necessities taken care of.

I’m going to think about this some more and see if I can gain some wisdom from others who have been through this with older kids… Let me know what works for you!

One more thing – from your post today. Maybe your son could or would sell some veggies to your neighbors or family. I forgot to mention the other idea I thought might be interesting for an older kid – a business… lemonade stand, building and selling birdhouses or growing and selling veggies. If you can get him to keep some basic books of costs/revenues and profit you could have the next Donald Trump in your house and not even know it!

Thanks so much for your thoughtful reply, Nick! I really like all the ideas and my wheels are turning big time! I am going to take him to a soup kitchen (something I’ve been wanting to do for a while anyway!) and I’m going to talk to him tomorrow about starting a business. I think he will be very excited about this! Last year, we didn’t have too many veggies from our garden because we didn’t work very hard on it (Baby SDR was born July 1st, so I was big, fat, and no help that Spring!), but the year before, we did have too many veggies to eat ourselves. Also, he LOVES making things! I think your birdhouse making/selling business idea is GENIUS!!!!

I’ve been talking to our daughter about money since she could talk. 🙂 She likes to put almost all the money she gets into savings and then transfer it to her CD whenever she gets her balance to $100. I went over the details about the different CD options with her and let her choose whichever one she wanted. It’s fun stuff.